From trusted staff to rivals: HK court on misuse of trade secrets

A recent Hong Kong High Court decision in Diagcor Bioscience Inc Ltd v Chan & Ors [2026] HKCFI 488 serves as a reminder of the serious risks posed by employee misconduct and the importance of safeguarding confidential information. The case highlights how quickly confidential business information can be misused to establish a competing business, and how complex, time-consuming and costly it can be for employers to enforce their rights once that damage has occurred.

Case summary

Diagcor Bioscience, a Hong Kong biotechnology company, sued five former employees and their new employers for misusing confidential and proprietary information (akin to trade secrets) to set up a rival business offering a similar prenatal genetic gender test ("Y-Test"). The rival business was launched less than two months after the employees' departure, raising suspicions about the use of Diagcor's confidential information.

The Defendants argued that, although some of the former employees had access to Diagcor's confidential information, they did not use it in developing their own Y-Test ("Rival Test"), which they claimed was independently created.

Diagcor also brought a negligence claim against one former employee for errors in laboratory test reporting.

Findings of the High Court

The Court found in favour of Diagcor on the main confidential information claim. In essence, the Court did not believe the Defendants' story that they had created their Rival Test on their own, in just a few weeks, by using only information from published scientific articles.

Key reasons for the Court's decision included that the Defendants had changed their stance about who developed the Rival Test, making their evidence unreliable; they failed to keep proper and contemporaneous records showing how the Rival Test was developed; one of the Rival Test's genetic markers was identical, including an unusual design tweak, to Diagcor's marker which the Defendants could not explain; and there were notable gaps and missing raw data in the Defendants' test validation, suggesting that it may not have been genuine.

Taking all these points together, the Court concluded that it was more likely than not that the Defendants had used Diagcor's confidential information to develop and launch the Rival Test, and that they had been acting in concert to do so.

On the negligence claim, the Court found the relevant Defendant liable for negligence in relation to one laboratory incident, but not for a second incident, due to insufficient evidence of negligence in the latter.

Key takeaway for employers

Employers should be aware that enforcing rights over confidential information can take years and require significant resources, even before any compensation is determined. Here, the proceedings began in 2012, involved a over 20-day trial on liability in 2024 with the judgment on liability handed down in 2026. A further trial on quantum is still to come. In situations like this, employers may wish to consider the injunction option to stop further damage while the court proceedings are ongoing.

The Court reaffirmed that a wide range of business information, including technical data, research methods and other sensitive material, may be protected as confidential information or trade secrets. Importantly, employees' confidentiality obligations continue after termination of employment. Liability is also not confined to those who directly misuse confidential information; third parties who assist or are involved, such as new business partners or related companies, may also be held liable.

From a practical perspective, employers should ensure that robust confidentiality agreements are in place, together with any post-termination restrictions where appropriate. Access to confidential information should be limited on a need-to-know basis and supported by effective IT controls and monitoring. On exit, employees should be reminded of their continuing obligations and access to systems and data should be revoked immediately. Where misuse is suspected, act fast. This includes preserving evidence, conducting internal investigations and obtaining legal advice on steps to prevent further damage or pursue claims.

The judgment can be found here.